United States
Securities and Exchange Commission

Washington, D.C. 20549

Schedule 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

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Littelfuse, Inc.

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Littelfuse, Inc.

O’Hare Plaza

8755 West Higgins Road

Chicago, Illinois 60631

 

 

Notice of Annual Meeting of Stockholders

 

April 24, 2009

 

The 2009 annual meeting of the stockholders of Littelfuse, Inc. (the “Company”) will be held at O’Hare Plaza, 8745 West Higgins Road, 1st Floor Conference Room, Chicago, Illinois, on Friday, April 24, 2009, at 9:00 a.m., local time, for the following purposes as described in the attached Proxy Statement:

 

1. To elect seven directors to serve a term of one year or until their successors are elected;

 

2. To approve and ratify the appointment by the Audit Committee of the Board of Directors of the Company of Ernst & Young LLP as our independent auditors for the fiscal year of the Company ending January 2, 2010; and

 

3. To transact such other business as may properly come before the annual meeting or any postponement or adjournment thereof.

 

Stockholders of record of the Company at the close of business on February 27, 2009 will be entitled to vote at the meeting.

 

Whether or not you plan to attend the meeting, we urge you to vote your shares over the Internet or via toll-free telephone number, as we describe in the accompanying materials and the Notice of Internet Availability of Proxy Materials. If you received a paper copy of the Proxy Card by mail, please complete, sign, date and return your proxy in the envelope provided.

 

Mary S. Muchoney

Secretary

 

March 11, 2009

 

 

 

 

Proxy Statement

for

Annual Meeting of Stockholders

To Be Held On

 

April 24, 2009

 

 

We are furnishing this Proxy Statement to the stockholders of Littelfuse, Inc. in connection with the solicitation by the Board of Directors of Littelfuse, Inc. of proxies to be voted at our annual meeting of stockholders to be held on April 24, 2009. The annual meeting will be held at O’Hare Plaza, 8745 West Higgins Road, 1st Floor Conference Room, Chicago, Illinois, at 9:00 a.m., local time, and at any postponements or adjournments of that meeting.

 

When used in this Proxy Statement, the terms “we,” “us,” “our,” “the Company” and “Littelfuse” refer to Littelfuse, Inc.

 

Any stockholder giving a proxy will have the right to revoke it at any time prior to the time it is voted. A proxy may be revoked by written notice to us sent to the attention of our Corporate Secretary at O’Hare Plaza, 8755 West Higgins Road, Chicago, Illinois 60631, execution of a subsequent proxy, voting on the Internet or by telephone or attendance at the annual meeting and voting in person. Mere attendance at the annual meeting will not automatically revoke the proxy. All shares represented by effective proxies will be voted at the annual meeting or at any adjournment thereof.

 

We will bear the cost of soliciting proxies. In addition to solicitation by mail, our officers and employees may solicit proxies by telephone or in person.

 

Under new Securities and Exchange Commission rules, this Proxy Statement, our 2008 Annual Report to Stockholders, including our Annual Report on Form 10-K for the fiscal year ended December 27, 2008, and other proxy materials are available online at www.proxyvote.com. We encourage you to access and review all of the important information in the proxy materials before voting. The Notice of Internet Availability of Proxy Materials is first being mailed to stockholders on or about March 11, 2009.

 

Forward-Looking Information

 

Statements in this Proxy Statement not based on historical facts are considered “forward-looking” and, accordingly, may involve risks and uncertainties that could cause actual results to differ materially from those discussed. Although such forward-looking statements have been made in good faith and are based on reasonable assumptions, there is no assurance that the expected results will be achieved. These statements include (without limitation) statements as to future expectations, beliefs, plans, strategies, objectives, events, conditions and financial performance. These statements are intended to constitute “forward-looking” statements in connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. We are providing this cautionary statement to disclose that there are important factors that could cause actual results to differ materially from those anticipated. See our Annual Report on Form 10-K for the year ended December 27, 2008 (the “2008 Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) for a list of such factors in Item 1A. Risk Factors.

 

The Board of Directors recommends a vote FOR ALL the nominees for director named in Proposal 1 and a vote FOR the approval and ratification of the appointment of Ernst & Young LLP as independent auditors as discussed in Proposal 2.

 

Voting

 

Stockholders of record on the books of the Company at the close of business on February 27, 2009, the record date for the annual meeting, will be entitled to notice of and to vote at the meeting. A list of the stockholders entitled to vote at the meeting will be available for examination by any stockholder for any purpose germane to the meeting during ordinary business hours for a period of at least ten days prior to the meeting at our headquarters located at O’Hare Plaza, 8755 West Higgins Road, Chicago, Illinois 60631 and at National City Bank N.A., our

transfer agent, at 629 Euclid Avenue, Suite 635, Cleveland, Ohio 44114. On February 27, 2009, we had outstanding 21,722,064 shares of our common stock, par value $.01 per share. Each outstanding share of common stock entitles the holder to one vote on each matter submitted to a vote at the meeting.

 

The shares represented by proxies will be voted as directed in the proxies. In the absence of specific direction, the shares represented by proxies will be voted FOR ALL of the nominees for director and FOR the approval and ratification of the appointment of Ernst & Young LLP as independent auditors. In the event any nominee for director is unable to serve, which is not now contemplated, the shares represented by proxies may be voted for a substitute nominee. If any matters are to be presented at the annual meeting other than the matters referred to in this Proxy Statement, the shares represented by proxies will be voted at the discretion of the named proxies.

 

Our bylaws provide that a majority of all of the shares of common stock entitled to vote, whether present in person or represented by proxy, constitutes a quorum for the transaction of business at the meeting. Votes for and against, abstentions and “broker non-votes” will each be counted as present for purposes of determining the presence of a quorum. To determine whether a specific proposal has received sufficient votes to be passed, for shares deemed present, an abstention will have the same effect as a vote “against” the proposal, while a broker non-vote will not be included in vote totals and will have no effect on the outcome of the vote. The affirmative vote by the holders of a majority of the shares present (whether in person or by proxy) at the meeting will be required for the approval of the ratification of Ernst & Young LLP as independent auditors. With respect to the election of directors, the seven nominees who receive the most votes at the meeting will be elected.

Ownership of Littelfuse, Inc. Common Stock

 

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of February 17, 2009, by each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, by each director, by each executive officer named in the Summary Compensation Table and by all of our directors and executive officers as a group. Information concerning persons known to us to be beneficial owners of more than 5% of our common stock is based upon the most recently available reports furnished by such persons on Schedule 13G as filed with the SEC. Of the shares reported, none are subject to pledge or lien in a margin account or pursuant to a loan agreement.

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires our executive officers, directors and holders of more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Based solely on our review of the copies of these reports and on information provided by the reporting persons, we believe that during the fiscal year ended December 27, 2008, our directors, officers and owners of more than 10% of our common stock complied with all applicable filing requirements, except for a Form 4 for Anthony Grillo, one of our directors, reporting five stock option exercises, which were inadvertently reported late.

 

Proposal No. 1

 

Election of Directors

 

We are asking our stockholders to elect seven directors at the annual meeting to serve terms of one year or until their respective successors have been elected. The nominees for director, all of whom are now serving as directors, are listed below together with certain biographical information as of March 11, 2009. Except as otherwise indicated, each nominee for director has been engaged in his present principal occupation for at least the past five years.

 

The Board of Directors recommends that the stockholders vote FOR the election of all of the nominees listed below as directors.

 

Tzau-Jin (T.J.) Chung, age 46, has been a director of Littelfuse since July 2007. Mr. Chung is President and CEO of Navman Wireless, a market leader in fleet management solutions and GPS technologies. Mr. Chung assumed his position in early 2007 upon the acquisition of Navman Wireless from the New Technologies Division of Brunswick Corporation. Previously, Mr. Chung served as President of the New Technologies Division of Brunswick Corporation from 2002 to 2007. Prior to that, he served as Vice President — Strategy of Brunswick Corporation, where he was responsible for corporate-wide strategic planning, mergers and acquisition and information technology. Mr. Chung earned his bachelor’s degree in science, electrical and computer engineering from the University of Texas — Austin. He also holds a Master of Science degree in computer science from North Carolina State University and a Master of Business Administration degree from the Fuqua School of Business at Duke University. Mr. Chung has been determined by the Board to be “independent” under the listing standards of the Nasdaq Global Select Market (“NASDAQ”).

 

John P. Driscoll, age 73, has been a director of Littelfuse since February 1998. Mr. Driscoll has been President of Jack Driscoll Enterprises, Inc., a management consulting firm, since 1998. In June 1998, Mr. Driscoll retired as Executive Vice President of Murata Electronics North America, Inc. where he was responsible for corporate policy and strategy and oversaw government and industry relations. Mr. Driscoll joined Murata Electronics in 1979 as Vice President of Marketing and Sales, was appointed Senior Vice President Marketing and Sales in 1985 and assumed the position of Executive Vice President in 1995. Mr. Driscoll is a former Vice President of the Components Group of the Electronic Industry Alliance, and a twenty-year member of its Board of Governors. He was also affiliated with the Electronics Component and Technology Conference and the Japan American Society. Mr. Driscoll has been determined by the Board to be “independent” under NASDAQ listing standards.

 

Anthony Grillo, age 53, has been a director of Littelfuse since December 1991. Mr. Grillo is the founder and Chief Executive Officer of American Securities Advisors, LLC, an advisory and investment firm established in 2005. From 2001 through 2004, Mr. Grillo was a Senior Managing Director of Evercore Partners, Inc., where he founded the restructuring practice for the firm. From 1999 through 2001, Mr. Grillo was a Senior Managing Director of Joseph Littlejohn & Levy, Inc., a private equity firm. From 1991 through 1999, Mr. Grillo was a Senior Managing Director of the Blackstone Group L.P., an investment banking firm. During those years, Mr. Grillo was the co-founder of Blackstone’s Restructuring and Reorganization Group, Chief Operating Officer of the firm’s mergers and acquisition practice and a member of its Investment Committee. Mr. Grillo serves as Chairman of the Board of Directors of Silicon Graphics, Inc. Mr. Grillo has been determined by the Board to be “independent” under NASDAQ listing standards.

 

Gordon Hunter, age 57, has been a director of Littelfuse since June 2002 and became our Chairman of the Board, President and Chief Executive Officer in January 2005. Mr. Hunter became our Chief Operating Officer in November 2003. Prior to joining Littelfuse, Mr. Hunter was Vice President, Intel Communications Group, and General Manager, Optical Products Group. Mr. Hunter was responsible for managing Intel’s access and optical communications business segments within the Intel Communications Group. Prior to joining Intel in February 2002, he served as President of Elo TouchSystems, a subsidiary of Raychem Corporation. Mr. Hunter also served in a variety of positions during a 20-year career at Raychem Corporation, including Vice President of Commercial Electronics and a variety of sales, marketing, engineering and management positions. Mr. Hunter currently serves on the Council of Advisors of Shure Incorporated and the Board of Directors of Rubicon Technology, Inc.

John E. Major, age 63, has been a director of Littelfuse since December 1991. Mr. Major has been President of MTSG, a strategic consulting and investments company, since 2003. From 2000 through 2003, he was Chairman and CEO of Novatel Wireless Inc., which provides wireless data access solutions for PDAs and notebook PCs. From 1998 through 1999, Mr. Major was Chief Executive Officer of Wireless Knowledge, a QUALCOMM and Microsoft joint venture. Before joining Wireless Knowledge in 1998, Mr. Major served as Corporate Executive Vice President of QUALCOMM, Inc. and President of its Wireless Infrastructure Division. Prior to joining QUALCOMM in 1996, Mr. Major served as Senior Vice President and Staff Chief Technical Officer at Motorola, Inc. Mr. Major serves as the Chairman of the Board of Directors of Broadcom Corporation and serves on the Board of Directors of Lennox International Inc. and ORBCOMM, Inc., all reporting companies under the Exchange Act. Mr. Major has been determined by the Board to be “independent” under NASDAQ listing standards.

 

William P. Noglows, age 51, has been a director of Littelfuse since February 2007. Mr. Noglows is Chairman, President and Chief Executive Officer of Cabot Microelectronics Corporation (NASDAQ:CCMP), a leading worldwide supplier of consumable products used in the semiconductor manufacturing process. Mr. Noglows assumed his current position at Cabot Microelectronics Corporation in 2003. Prior to that, he was an Executive Vice President and General Manager at Cabot Corporation. In this position, Mr. Noglows was responsible for running the $1.2 billion core particle business, which included operations in North and South America, Europe and Asia. Mr. Noglows was a primary founder of Cabot Microelectronics, which has been a fully independent, publicly-traded entity since 2000. He received a bachelor’s degree in chemical engineering from the Georgia Institute of Technology. Mr. Noglows has been determined by the Board to be “independent” under NASDAQ listing standards.

 

Ronald L. Schubel, age 65, has been a director of Littelfuse since June 2002. In September 2007, Mr. Schubel retired as Corporate Executive Vice President and President of the Americas Region for Molex Incorporated, a global manufacturer of interconnect systems. He began his career with Molex in 1981, spending over four years in Singapore as President of the Far East South Region. Prior to joining Molex, Mr. Schubel worked for General Motors for 15 years. His last position with General Motors was Director of Operations for the Packard Electronics Division. Mr. Schubel has been determined by the Board to be “independent” under NASDAQ listing standards.

 

Information Concerning the Board of Directors and its Committees

 

Compensation of Directors.  Directors who are not our employees are paid an annual director’s fee of $40,000, $1,500 for each of the four regularly scheduled Board meetings attended and $1,000 for attendance at any special teleconference Board or Committee meetings, plus reimbursement of reasonable expenses relating to attendance at meetings. Our Lead Director is paid an additional $7,500 annually; the Chairman of the Audit Committee is paid an additional $10,000 annually; the Chairman of the Compensation Committee is paid an additional $10,000 annually; the Chairman of the Nominating and Governance Committee is paid an additional $5,000 annually; and the Chairman of the Technology Committee is paid an additional $5,000 annually. No fees are paid to directors who are also our full-time employees.

 

Under the Amended and Restated Littelfuse, Inc. Deferred Compensation Plan for Non-employee Directors (the “Non-employee Directors Plan”), a non-employee director, at his election, may defer receipt of his director’s fees. Such deferred fees are used to purchase shares of our common stock, and such shares and any distributions on those shares are deposited with a third party trustee for the benefit of the director until the director ceases to be a director of Littelfuse. In 2008, all non-employee directors elected to be compensated in common stock under the Non-employee Directors Plan, except Mr. Noglows.

 

On April 27, 2007, the stockholders approved the Amended and Restated Littelfuse, Inc. Outside Directors’ Equity Plan (the “Outside Directors’ Plan”), which amended and restated the Littelfuse, Inc. Outside Directors’ Stock Option Plan (the “Former Directors Plan”) to allow more discretion in the number and types or awards that could be granted. The Outside Directors’ Plan allows awards of stock options, stock appreciation rights, restricted stock and restricted stock units. The stock appreciation rights may be granted alone or in tandem with stock options. The Committee has determined that it will provide under the Outside Directors’ Plan an annual grant of stock options and restricted stock units to our non-employee directors with

an estimated value of $90,000. The stock options and restricted stock units vest ratably over three years. The stock options have an exercise price equal to the fair market value of our common stock on the date of grant and have a seven-year term. The restricted stock units entitle the director to receive one share of common stock per unit upon vesting. On April 25, 2008, Messrs. Chung, Driscoll, Grillo, Major, Noglows and Schubel were each granted an option to purchase 2,415 shares of common stock and 1,652 restricted stock units.

 

The following table sets forth compensation paid to all persons who were non-employee directors at any time during 2008:

 

2008 Director Compensation Table

 

 

 

 

Attendance at Meetings.  The Board of Directors held nine meetings during fiscal year 2008. All of the directors attended at least 75% of the meetings of the Board of Directors and the committees on which they served. It is our policy that all of the directors attend our annual meeting of stockholders.

 

Independent members of our Board of Directors meet in executive session without management present at least two times per year. Stockholders wishing to communicate directly with the Board or individual directors should communicate in writing to our Corporate Secretary at our principal executive offices. Our Corporate Secretary will in turn promptly forward such communication to the directors.

 

Audit Committee.  The Audit Committee is responsible for, among other things, the appointment, compensation, retention and oversight of the work of the independent registered public accounting firm engaged (including resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. It is also the responsibility of the Audit Committee to (1) review the adequacy and effectiveness of the accounting and financial controls and procedures of the Company and (2) review transactions posing a potential conflict of interest between us and our directors, officers and affiliates. A copy of the Audit Committee Charter is available on our website at www.littelfuse.com. The Audit Committee met five times in 2008. Members of the Audit Committee are Anthony Grillo, the Chairman of the Committee, John E. Major and Ronald L. Schubel, each of whom has been deemed by the Board to be “independent” and meet the enhanced standard requirements for audit committee members under the NASDAQ rules and listing standards and the rules and regulations of the SEC. The Board of Directors has determined that Anthony Grillo is an “audit committee financial expert” based on his experience as a certified public accountant, investment banker and private equity investor.

 

Nominating and Governance Committee.  It is the responsibility of the Nominating and Governance Committee to identify individuals qualified to serve on our Board of Directors and to recommend those individuals the Board should nominate for election at our annual meeting of stockholders. The Board of Directors has adopted a charter for the Nominating and Governance Committee. A copy of that charter is available on our website at www.littelfuse.com. The Nominating and Governance Committee met three times during 2008. The Nominating and Governance Committee reviewed the performance of all of the current members of the Board of Directors and determined and recommended to the Board that all of the current directors should be nominated for re-election. In making this recommendation, consideration was given to matters such as attendance at meetings, preparation for meetings, input at meetings, interaction with other Board members, and other tangible or intangible benefits their service as directors brought to us. No other candidates were recommended or evaluated. Members of the Nominating and Governance Committee are Ronald L. Schubel, the Chairman of the Committee, John P. Driscoll and William P. Noglows, each of whom has been deemed by the Board to be independent under NASDAQ listing standards.

 

Director Qualification Standards

 

The Nominating and Governance Committee, in considering a person for a nominee as a director, takes into consideration such factors as it deems appropriate, including the following:

 

 

The Nominating and Governance Committee will consider nominees for the Board of Directors recommended by stockholders, using the same evaluation process as for any other candidate. Recommendations should be submitted to the Corporate Secretary at our principal executive offices or directly to any member of the Nominating and Governance Committee. Any recommendation must include:

 

 

To be considered by the Nominating and Corporate Governance Committee for nomination and inclusion in our proxy statement for the 2010 Annual Meeting, stockholder recommendations for director must be received by us no later than February 23, 2010. Each stockholder recommendation must include the name and address of the nominating stockholder and the number of shares owned beneficially and of record by such stockholder.

 

Technology Committee.  It is the responsibility of the Technology Committee to review our research and development activities and ensure we maximize the use of technology throughout the organization. The Board of Directors has adopted a charter for the Technology Committee, which is available on our website at www.littelfuse.com. The Technology Committee met four times in 2008. Members of the Technology Committee are John E. Major, Ronald L. Schubel, T.J. Chung and Gordon Hunter, the Chairman of the Committee.

 

Compensation Committee.  The Compensation Committee’s charter is posted on our website, at www.littelfuse.com. The Compensation Committee is charged in the charter with the authority to review our compensation practices and policies, review and recommend to the Board for its consideration and determination the compensation for the Board of Directors, Chief Executive Officer and the other executive officers, evaluate Chief Executive Officer performance, and annually review and report on our compensation discussion and analysis and recommend its inclusion in our Form 10-K and Proxy Statement. The Compensation Committee held five meetings in 2008. The members of the Compensation Committee are John P. Driscoll, the Chairman of the Committee, and William P. Noglows, each of whom has been deemed by the Board to be independent under NASDAQ listing standards. See the “Compensation Committee Report” below.

 

Processes and Procedures

 

The Compensation Committee focuses on good governance practices and procedures in its operation. In 2008, this included:

 

 

Delegation of Authority

 

The Compensation Committee charter does not provide authority to the Committee to delegate its role and responsibilities to any persons.

 

Role of Executive Officers

 

A discussion of the role of management in determining compensation levels can be found in this Proxy Statement under “Executive Compensation — Compensation Discussion and Analysis.”

 

Role of Compensation Consultant

 

The Compensation Committee engaged Compensation Strategies, Inc. during 2008 to assist it with compiling a comprehensive analysis of market data and analyzing its implications for executive compensation at the Company, as well as various other executive compensation issues. Compensation Strategies was first engaged by the Committee in August 2007 and was instructed to work with management to obtain the necessary information for the following: (1) to undertake a competitive review of executive compensation levels for 2008; (2) to review our annual bonus and long-term incentive programs; (3) to review the benefit programs available to executives versus the competitive market; and (4) to review the executive compensation philosophy. Compensation Strategies presented the findings to the Committee for its consideration in October 2007 and January 2008 and continued to work with the Committee throughout the year with respect to these issues and as requested by the Committee.

 

Compensation Committee Interlocks and Insider Participation

 

William P. Noglows and John P. Driscoll served on the Compensation Committee during fiscal 2008. None of our executive officers served as a member of the compensation committee, or a board of directors performing equivalent functions, of any entity that had one or more of its executive officers serving as a member of our Compensation Committee.

 

Executive Compensation

 

Compensation Discussion and Analysis

 

This section provides information regarding the compensation and benefit programs in place for our Chief Executive Officer, Chief Financial Officer and our three other most highly compensated executive officers (collectively, the “Named Executive Officers” or “NEOs”) for 2008:

 

1. Mr. Gordon Hunter, Chairman of the Board, President and Chief Executive Officer, has five years of service with Littelfuse.

 

2. Mr. Philip G. Franklin, Vice President, Operations Support, Chief Financial Officer and Treasurer, has ten years of service with Littelfuse.

 

3. Mr. Dal Ferbert, Vice President and General Manager of our Electrical Business Unit, has 32 years of service with Littelfuse.

 

4. Mr. Ryan Stafford, General Counsel and Vice President, Human Resources, has two years of service with Littelfuse.

 

5. Mr. David W. Heinzmann, Vice President of Global Operations, has 24 years of service with Littelfuse.

 

Total Rewards Philosophy

 

The Compensation Committee of our Board of Directors (the “Committee”) is responsible for guiding and overseeing the formulation and application of the compensation and benefit programs for our NEOs. Our Total Rewards Philosophy for executive compensation is designed to drive performance in the form of global

business growth and success by fully leveraging our investment in our human capital and to create stockholder value. To achieve our goals, we must attract and retain individuals with the appropriate expertise and leadership ability, and we must motivate and reward them to build long-term stockholder value.

 

The Compensation Committee has worked with our management and the Committee’s compensation consultant to design compensation programs with the following primary objectives:

 

 

The design of our specific programs is based on the following guiding principles:

 

Performance

 

We believe that the best way to accomplish alignment of compensation with the interests of our stockholders is to link a significant portion of total compensation directly to meeting and exceeding individual, business unit and overall Company performance goals. When performance exceeds expectations, total pay levels are expected to be above the competitive median. When performance falls below expectations, total pay levels are expected to be below competitive levels.

 

Competitiveness

 

Compensation and benefit programs are designed to be competitive with those provided by companies with whom we compete for talent. Generally, we target the 50^th percentile of the total compensation programs of competitor companies, adjusted for an executive’s operating responsibilities, management level and tenure and performance in the position. In order to help us analyze the competitiveness of our compensation programs, we developed a reference group in October 2007, as discussed in more detail below in “Total Rewards Philosophy — Competitive Analysis.” Our benefit programs are designed to provide competitive levels of protection and financial security but are not based on performance.

 

Cost

 

Compensation and benefit programs are designed to be cost effective, ensuring that the interests of our stockholders are considered.

 

The Annual Compensation Process

 

The Committee reviews the industry data and performance results presented by its compensation consultant in determining the appropriate aggregate and individual compensation levels for the performance year. In conducting its review, the Committee considers quantitative performance results, the overall need of the organization to attract, retain and motivate the executive team, and the total cost of compensation programs. The Committee also reviews information showing the executive’s total target and actual compensation during the year. The amount of compensation already realized or potentially realizable, however, does not directly impact the level at which future pay opportunities may be set.

 

Starting in 2006, the Committee established a process of reviewing base salaries in the fall, with any changes to be effective February 1 of the following year. This process aligns annual executive salary adjustments with those for the rest of our employees. The benefits payable under the Littelfuse, Inc. 2008 Annual Incentive Plan (the “Annual Incentive Plan”) for the preceding year and the terms of the program for the current year generally are established in February or March of each year. Stock options and performance share/unit awards were traditionally granted in April or May of each year at the regularly scheduled meetings of the Compensation Committee and the full Board held in connection with our Annual Meeting of Stockholders. Beginning in 2008, however, performance share/unit awards were made before the end of March

so that they may qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code (“Section 162(m)”). Stock options and restricted stock (please see discussion below in the section entitled “— Equity Compensation”) were still granted on April 25, 2008 at the meetings of the Compensation Committee and the full Board held in connection with our 2008 Annual Meeting of Stockholders. Since we establish the meeting schedule and agenda for these grants well in advance, there is no opportunity for manipulation of exercise prices on option grants if we are in possession of non-public information at the time of the meetings. Approval of grants for any newly-hired or promoted executives during the course of the year generally occurs at the Compensation Committee meeting immediately following the hiring or promotion.

 

Competitive Analysis

 

Competitive compensation levels for our Chief Executive Officer and other NEOs are established through the use of data obtained from the Committee’s compensation consultant. These analyses include base salary, annual incentive opportunities and long-term incentive opportunities for comparable companies. In October 2007, we adopted an industry reference group as a source to evaluate compensation levels. The reference group consists of 17 publicly-traded companies of reasonably similar size to us in the electronic equipment/electronic manufacturing services industry, the electronic components and equipment industry and the semiconductor/semiconductor equipment and manufacturing industry, representing different segments of our business. The companies included in the reference group are set forth below:

 

 

The raw data derived from each company in the reference group is size-adjusted to approximate Littelfuse’s revenues for the corresponding fiscal year. The total compensation for our NEOs is generally targeted at the 50^th percentile of the adjusted data specific to each position. In some instances, however, we provide compensation above or below the 50^th percentile for a particular element and/or for a particular position, based on internal factors, including the executive’s operating responsibilities, management level, possible differences in compensation standards in the representative industries, the focus of our Total Rewards Philosophy, and tenure and performance in the position.

 

Allocation Between Cash and Non-Cash Compensation and Current and Long-Term Compensation

 

We believe that both cash components and non-cash components are appropriate mechanisms for delivering compensation. Cash compensation is used as current compensation (i.e., base salary and annual incentive awards), while non-cash compensation (i.e., stock options, performance shares/units and restricted

stock) is generally used for long-term compensation. The allocation between cash and non-cash compensation is an outcome of our targeted competitiveness for individual program elements, including salary, annual incentive compensation and long-term incentive grants, and our practice with respect to allocating between the different types of long-term incentive grants. The mix of compensation ultimately realized by the executives is determined by a combination of individual, team and Company-wide performance over time.

 

The allocation between current and long-term compensation is based primarily on competitive market practices relative to base salaries, annual incentive awards and long-term incentive values, as opposed to a targeted allocation between current and long-term pay. We also consider certain internal factors that may cause us to target a particular element of an executive’s compensation differently. These internal factors may include the executive’s operating responsibilities, management level and tenure and performance in the position. We consider the total compensation to be delivered to individual executives, and as such exercise discretion in determining the portion allocated to annual and long-term incentive opportunity. We believe that this “total compensation” approach provides the ability to align pay decisions with the short and long-term needs of the business. It also allows for the flexibility needed to recognize differences in performance by providing differentiated pay.

 

Management’s Role

 

The key elements of management’s role in determining compensation levels for the NEOs are as follows:

 

 

The Independent Consultant

 

The Committee has the authority under its charter to engage the services of outside advisors to assist in carrying out its duties. Under this authority, the Committee retained Compensation Strategies, Inc. in August 2007 to assist in the structuring of executive compensation for 2008. The Committee has continued to engage Compensation Strategies in structuring executive compensation in 2009. Compensation Strategies does not provide any other service to us.

 

Impact of Accounting and Tax Issues on Executive Compensation

 

In setting each executive’s compensation levels, we do not have a stated policy that all compensation must be deductible. The Committee will consider various alternatives to preserving the deductibility of compensation payments and benefits to the extent reasonably practicable and to the extent consistent with our other compensation goals. The Committee and the Board analyze the overall expense arising from aggregate executive compensation levels and awards and the components of our pay programs. Section 162(m) places a limit of $1,000,000 on the amount of compensation that we may deduct in any one year with respect to our

Chief Executive Officer and certain of our other most highly compensated executive officers. Compensation that qualifies as “performance-based compensation” under Section 162(m), including compensation pursuant to plans or arrangements approved by our stockholders, is not subject to the deduction limit. The Littelfuse, Inc. Equity Incentive Compensation Plan (the “Equity Plan”) and the Annual Incentive Plan have been approved by our stockholders; as a result, stock option, performance share/unit awards and annual cash incentive awards under these plans may qualify for a performance-based deduction and may not be subject to the deductibility limit imposed by Section 162(m).

 

Employment Contracts

 

As of December 31, 2007, we entered into an amended and restated employment agreement with Mr. Gordon Hunter, our Chairman of the Board, President and Chief Executive Officer, which replaced his employment agreement dated as of May 1, 2006. The employment agreement was amended and restated in order to comply with the requirements of Section 409A of the Internal Revenue Code and accompanying regulations (“Section 409A”). The term of the employment agreement runs until death, disability, or such time as terminated by us or Mr. Hunter. We may terminate Mr. Hunter’s employment at will or upon 60 days notice subject to certain payments as further discussed below in the section entitled, “Gordon Hunter’s Employment Agreement Post-Employment Provisions.” The employment agreement requires us to provide Mr. Hunter with a base salary of at least $525,000 per year, provisions for a home office, an automobile, and up to $15,000 in annual financial planning and tax counseling services. The employment agreement also contains non-disclosure, non-competition, non-solicitation and non-hire provisions for Mr. Hunter upon cessation of his employment with us. The foregoing description of the terms of the employment agreement is qualified in its entirety by reference to the employment agreement as set forth on Exhibit 10.2 to our Annual Report on Form 10-K for the fiscal year ended December 27, 2008.

 

Please see additional discussion regarding the terms of Mr. Hunter’s employment agreement below in the section entitled “ — Post-Employment Compensation.” Other than the change of control employment agreements also discussed below under ‘‘-Post-Employment Compensation,” none of the other NEOs have employment agreements.

 

Components of Total Compensation

 

The compensation of our NEOs consists of five components:

 

 

Each component is designed to help achieve our compensation objectives and to contribute to a total package that is competitive, appropriately performance-based and valued by our executives.

 

 

Purpose:  The determination of each executive officer’s base salary is designed to attract, retain and motivate highly qualified executives by paying a competitive salary.

 

Administration:  Our Chief Executive Officer and our General Counsel and Vice President, Human Resources recommend officer salary levels (other than for the Chief Executive Officer) to the Committee for approval. The Committee reviews these recommendations along with the reference group information and other information and advice of the compensation consultant, if any, and makes its recommendations to the full Board for approval. The Committee determines and makes Chief Executive Officer salary recommendations to the full Board for approval by the independent directors.

Determination of amounts:  Base salary is targeted for the 50th percentile of the reference group, adjusted to compensate for individual scope of responsibility, years of experience, past and future contributions to our success and possible differences in compensation standards in the electronics industry. We strive to be market competitive in an effort to attract and retain talented executive officers. The NEOs’ salaries are determined by market salary data and each individual’s position, responsibility and longevity within our company and performance in that position. We believe that the 2008 base salaries were within ten percent of the adjusted median of our reference group.

 

NEO base salaries for 2008 were determined based on our historical compensation for our NEOs and on analysis from October 2007 regarding the comparison of our NEO compensation with the size-adjusted data from our reference group. The Committee increased base salaries for all NEOs by 4% effective February 1, 2008, taking into account the compensation consultant’s advice and broad-based published surveys that the average annual salary increase for NEOs in 2008 was 4%. Consequently, on February 1, 2008, the base salary amounts for the NEOs were increased to the following:

 

 

In light of the increasingly difficult business environment caused by the worldwide economic slowdown, the credit crisis and their ongoing effects on our results of operations, we have been emphasizing and implementing cost cutting measures at all levels to reinforce the long-term strength of the Company. In connection with these cost cutting measures, the Committee has recommended to the Board, and the Board has approved, that the base salaries of our NEOs will not increase for the 2009 fiscal year.

 

 

Purpose:  The Annual Incentive Plan is designed to provide a cash reward to the NEOs for contributing to the achievement of our corporate goals and driving stockholder value, thereby addressing the objectives of our executive compensation policies.

 

Administration:  The Committee, after (1) consulting with our Chief Executive Officer and our General Counsel and Vice President, Human Resources, (2) reviewing the reference group information and other information and advice of the compensation consultant, if any, and (3) discussing the financial goals and targets of the Company for the next fiscal year with our Chief Executive Officer and our Vice President, Operations Support, Chief Financial Officer and Treasurer, establishes a threshold, target and a maximum amount that may be awarded as an annual incentive compensation award to each NEO. The threshold, target and maximum amounts are set as percentages of each NEO’s base salary.

 

Awards are granted based on an explicit formula approved by the Committee and recommended to the full Board for approval, typically in February of each year. At the end of each fiscal year, the amount of the total award paid to each of the other executive officers is calculated by the Committee based on Company and individual performance measures using a mathematical formula weighting each of the factors. The Committee then recommends the awards to the full Board for approval.

 

Except for Mr. Hunter’s award, which was structured to comply with Section 162(m), the Board retains the discretion to adjust any awards determined by the formula to make adjustments for extraordinary events. In the past, these adjustments have included severance charges and extreme commodity price changes, but no such adjustments were made for the 2008 awards.

 

Determination of amounts:  Bonus amounts are earned based on the achievement of established objectives on a sliding scale from 0% to 200% of the target amount. Bonuses paid to individual NEOs are based on both the actual financial results in relation to the target goals under the plan and an evaluation of the

NEO’s performance in relation to his or her individual performance objectives. For all NEOs but Mr. Hunter, approximately 80% of the award is tied to the actual financial results in relation to the target goals under the plan and approximately 20% is based on individual performance objectives, some of which are qualitative in nature and may require subjective determinations by the Committee in its discretion. Since Section 162(m) allows payout amounts to be reduced (but not increased) at the discretion of the Committee, the 20% portion of the award based on the achievement of performance objectives that was previously included for Mr. Hunter was replaced with a 20% portion that would be fully-earned at a maximum level based on meeting a minimum amount of earnings per share. The Committee or the Board can then use its negative discretion to reduce this portion of the award to appropriate levels based on performance against his stated goals.

 

In determining each NEO’s total award, Company performance is determined based on the achievement of specified financial objectives applicable to each NEO in various measures, which include sales, earnings per share and cash from operations, as well as performance measurements of the areas within the scope of authority of the NEO, while individual performance is determined based on each of the NEO’s achievement of specified individual performance objectives. For 2008, the Company performance objectives at target level for the NEOs consisted of earnings per share of $1.85, cash from operations of $51.0 million, and, for Messrs. Hunter, Franklin, Stafford and Heinzmann, sales of $579.1 million. Mr. Ferbert’s objectives also included net sales and operating income for his business unit. For Mr. Ferbert, the net sales target for 2008 was $55.0 million and the operating income target was $12.5 million.

 

In addition, each NEO had individual performance objectives for 2008. For Messrs. Hunter, Franklin, Stafford and Heinzmann, these individual performance objectives were Company-wide initiatives. Mr. Hunter’s objectives included executing the strategic plan, refining financial processing and reporting, developing the management team, tracking and improving research and development spending and effectiveness and developing additional growth strategies. Mr. Franklin’s objectives included refining financial processing and reporting, integrating new hires for information technology and customer service, reducing costs in purchasing, leading our acquisition efforts and managing investor relations. Mr. Stafford’s objectives included refining corporate governance and compliance programs, formulating leadership development programs and refining the succession planning process, coordinating with our Chief Executive Officer to improve the effectiveness of the Board of Directors and continuing to develop the human resources support team. Mr. Heinzmann’s performance objectives included developing a new global operations initiative, successfully managing the 2008 phase of our restructuring, enhancing operations for our business units and completing quality and customer service initiatives. The performance objectives for Mr. Ferbert were broader but generally involved sales, marketing and operational goals for his business unit. While some of the 2008 individual performance objectives for each NEO may be measured by objective standards, others may be more qualitative in nature and are ultimately subject to the determination of the Committee based on input from our Chief Executive Officer. As stated earlier, the 20% portion of the award based on individual performance objectives for Mr. Hunter was replaced in 2008 with a 20% portion that would be fully-earned at a maximum level based on meeting the minimum threshold amount of earnings per share of $1.50. The Committee or the Board may then use its negative discretion to reduce this portion of the award to appropriate levels based on performance against the stated goals.

 

The following table summarizes Annual Incentive Plan target percentages for the NEOs for 2008:

 

 

The threshold, target and maximum amounts as percentages of each NEO’s base salary are set forth in the Grants of Plan Based Awards in 2008 Table included in this Proxy Statement. We generally attempt to

benchmark the 50th percentile of the total compensation of our reference group, but do not necessarily benchmark our annual bonus against a certain percentile of the reference group. We determine to set the threshold, target and maximum amounts so that, if earned, we pay sufficient total annual compensation to remain competitive. While our target bonus amounts were considerably larger than the adjusted median of the reference group, the Committee did this in order to place a larger percentage of total compensation “at risk” and conditioned on meeting Company and personal objectives. In addition, based on our previous financial performance and the projections for 2008 performance, the Committee set what it considered aggressive Company performance objectives for the Annual Incentive Plan in 2008.

 

In January 2009, the Committee made determinations as to the satisfaction of the individual performance factors for 2008 for each NEO and determined payouts under the Annual Incentive Plan for 2008. For 2008, the Company’s performance objectives for earnings per share and sales did not meet the threshold amounts considered by the Committee for awards. The Company’s performance objectives for cash from operations exceeded the threshold amounts considered by the Committee but did not reach target levels. These results particularly influenced the award decisions for Messrs. Hunter, Franklin, Stafford and Heinzmann, whose payouts were all below target payout levels. Mr. Ferbert, however, exceeded his net sales and operating income target for his business unit, and, therefore, his payout exceeded his target amount. In addition, the Compensation Committee positively reviewed each NEO’s performance against his respective individual performance objectives and, with the exception of Mr. Hunter, awarded the NEOs a corresponding increase in their total bonus based on such review. As previously discussed, in order to comply with Section 162(m) of the Internal Revenue Code, Mr. Hunter’s awards under the Annual Incentive Plan no longer contain a portion for which positive discretion by the Committee is allowed. Mr. Hunter did not receive the 20% portion of his award that would have been fully-earned at a maximum level based on meeting the minimum threshold amount of earnings per share of $1.50. The table below shows the amounts awarded under the awards granted under the Annual Incentive Plan in 2008 for each NEO and the amount as a percentage of base salary.

 

 

In light of the worldwide economic slowdown and the difficulty in setting effective and meaningful financial objectives, the Committee has not yet established the Company financial objectives or individual performance objectives of our NEOs for the Annual Incentive Plan in 2009. The Committee is still considering a range of options for the Annual Incentive Plan in 2009, including a significant reduction in payouts or a one-year suspension of the Annual Incentive Plan for our executive officers.

 

 

Purpose:  Beginning in 2008, the Committee began awarding a combination of three types of equity awards under the Littelfuse, Inc. Equity Incentive Compensation Plan (the “Equity Plan”) to our NEOs: stock option awards, performance share/unit awards and restricted stock. The restructuring of the equity compensation program to include awards of restricted stock in addition to stock option awards and performance share/unit awards was in response to the revised option expensing rules and to remain competitive with the programs of our competitors and members in our reference group. The Committee felt that each type of award emphasized a separate goal of equity compensation: (1) options help align each NEO’s financial interests with driving stockholder value, (2) the performance shares/units focus the NEOs efforts on long-term financial performance of the Company, and (3) restricted stock both aligns NEO interests with that of our stockholders and assists in the retention of executives. Since we believe that equity compensation appropriately aligns the interests of NEOs with those of the stockholders, we do not currently have a formal policy regarding equity or other security ownership requirements for our NEOs.

Administration:  The Committee approves the awards of stock options, performance shares/units and restricted stock based upon (1) the recommendations of our Chief Executive Officer and our General Counsel and Vice President, Human Resources with respect to the NEOs other than the Chief Executive Officer and on its own with respect to the Chief Executive Officer and (2) reviewing the reference group information and other information and advice of the compensation consultant, if any. The overall funding levels for our equity awards, however, are ultimately subject to the judgment and approval of the Committee to ensure appropriate alignment with the interest of our stockholders. Stock options are typically granted with a four-year vesting period and an exercise price equal to the fair market value of our common stock on the date of grant. The Equity Plan does not permit grants of stock options with exercise prices below the fair market value of the stock at the time of the grant. The Committee calculates the performance share/unit awards to be paid out based on the achievement of performance factors as described below, determined at the end of the three-year performance period. For the awards granted prior to 2008, the performance shares/units earned after the three-year performance period vested ratably over a subsequent three-year period, with half of the vested amount paid in shares and half in cash. Beginning with the 2008 awards, the performance share/unit awards will be paid out entirely in shares at the end of the three-year performance period. The Committee made these changes to the performance share/unit awards because it determined that the previous six-year payout structure was too long and did not have an adequate motivational value for the NEOs. Grants of restricted stock vest at the rate of 25% per year on each of the first four anniversaries of the grant date.

 

Determination of Amounts:  While the total equity compensation awards are targeted to the 50^th percentile of our reference group, the Committee establishes the allocation of grant opportunity between the three types of equity compensation based primarily on a combination of market practice, internal equity considerations, individual performance and relative importance of the objectives behind each of the programs (i.e., provide value tied to stock price appreciation, long-term financial performance, and retention). In 2008, the Committee determined that approximately 40% of the value of the equity awards should be made in each of performance shares/units and stock options, with the remaining 20% of the value of the equity awards to be made in restricted stock. We believe that the value of our 2008 equity compensation was within ten percent of the adjusted median of our reference group.

 

In 2009, following a review of the performance share/unit award program, the Committee decided to suspend the grant of these awards in 2009 due to the relative ineffectiveness of the grants in achieving their designed objective (reflected in the fact that previous awards had paid out in only two of the last 12 years), the complexity of managing the program and the difficulty in setting three-year targets during the current economic downturn. Based on this decision, the Committee anticipates that the total value of the equity grants in 2009 will be less than the value of the equity grants in 2008; however, the actual number of stock options and restricted stock to be awarded in connection with the annual grants may actually increase from 2008.

 

 

Grants of stock options are intended to recognize different levels of contribution to the achievement of our performance goals as well as the different levels of responsibility and experience as indicated by each NEO’s position. When the Committee reviewed the structure of the long-term equity awards in October of 2007, it reduced the amount of stock options to reflect the addition of the awards of restricted stock. As a result, the Committee granted a reduced number of awards in 2008 as compared to 2007, as set forth on the Grants of Plan-Based Awards in 2008 Table below. In 2009, even with an overall reduction in the value of the equity grants, the number of stock options granted may increase from 2008 because of the relative decline in the price of our common stock.

 

 

Generally, the Committee annually grants performance share/unit awards based on our attaining certain financial performance goals established at the start of each three-year period based on our evolving business strategy and sets target award amounts for each NEO. The performance share/unit awards made prior to 2008 were earned based on our attaining financial performance goals relating to return on net tangible assets (“RONTA”) and earnings before interest, taxes, depreciation and amortization (“EBITDA”) over a three-year

period, and any performance shares earned vested ratably over a subsequent three-year period. In conjunction with the addition of the restricted stock awards to the total equity compensation program, the design of the performance shares/units was changed for the performance period beginning in 2008. The annual performance share/unit awards continue to be based on our attaining financial performance goals relating to a three-year period. However, RONTA was replaced with return on net assets (“RONA”), while EBITDA remains unchanged. There is no longer a subsequent three-year vesting period after the performance shares/units have been earned, and the awards are paid at the end of the three-year period entirely in stock rather than half in stock and half in cash. The payment structure of the performance shares/units was updated to consist of a sliding scale from 50% to 200% of the target amount of performance shares/units awarded in order to encourage high levels of performance achievement, rather than the previous scale of 20% to 100%. The performance goals set for the 2008 awards under the EBITDA and RONA metrics were determined by the Committee with reference to the Company’s current long-term strategic plan, commencing with fiscal 2008 and extending through fiscal 2010. The target amounts of performance shares/units awarded in 2008 are set forth below:

 

 

For the three-year performance period ending in 2008, EBITDA growth of at least 11% was the threshold and over 15% was the maximum for that performance factor and RONTA of at least 13% was the threshold and over 17% was the maximum for that performance factor. The performance shares/units earned during the three-year period are awarded as restricted stock, the awarded restricted stock then vests ratably over a three-year period, with actual payouts upon vesting made half in restricted stock and half in cash. For the three-year period ending in 2008, the performance factors required to earn restricted stock for the performance shares/units were not met, so no restricted stock was earned by the NEOs. As noted above, the Committee does not intend to issue performance share/unit awards in 2009.

 

 

Grants of restricted stock are designed to align NEO interests with that of our stockholders and assist in the retention of executives. When the Committee reviewed the structure of the long-term equity awards in October of 2007, it decided to grant awards of restricted stock for the first time in 2008. In the first equity grant that included restricted stock, 20% of the value of the equity awards was made in restricted stock. The restricted stock awards granted in 2008 to the NEOs are set forth in the Grants of Plan-Based Awards in 2008 Table below. In 2009, even with an overall reduction in the value of the equity grants, the number of restricted stock grants may increase from 2008 because of the relative decline in the price of our common stock.

 

 

Perquisites

 

The Chief Executive Officer and other NEOs are provided with the opportunity to receive financial planning services and executive physicals on an annual basis. Each NEO is entitled to a maximum of $5,000 per year of financial planning services, except for Mr. Hunter, who, pursuant to his employment agreement, is entitled to $15,000 per year of financial planning, and up to $5,000 per year for an executive physical. We provide these benefits to help our NEOs efficiently manage their time and financial affairs and to allow them to stay focused on business issues and minimize distractions of this type. Additionally, Mr. Hunter is provided with a Company automobile as required by his employment agreement, the terms of which were established to remain competitive against our peers.

Health and Welfare Programs

 

We provide sponsored insurance and benefit plans to our executives. The NEOs participate in the same benefit plans designed for all of our full-time U.S. employees. We believe these insurance and benefit plans are expected attributes of a total compensation system, and we provide them to remain competitive. The core insurance package includes health, dental, disability and basic group life insurance coverage. The NEOs are also provided with a supplemental life insurance plan in order to provide a targeted level of coverage equal to three times salary plus $10,000. We provide this benefit to remain competitive with those companies with whom we compete for executive talent.

 

 

Retirement Plans

 

We provide retirement benefits to executives through a combination of qualified and non-qualified plans:

 

Littelfuse, Inc. Retirement Plan (the “Pension Plan”)

 

The Pension Plan is a qualified defined benefit plan, under the applicable provisions of the Internal Revenue Code, intended to provide for an employee’s financial security in retirement. The Pension Plan is available to all eligible employees including the NEOs. Effective April 1, 2009, the Board intends to suspend the Pension Plan for the remainder of the 2009 calendar year, resulting in no additional accrued benefits for the NEOs or any other participants in the Pension Plan for the remainder of the 2009 calendar year.

 

Littelfuse, Inc. Supplemental Executive Retirement Plan (“SERP”)

 

The Supplemental Executive Retirement Plan is a defined contribution, non-qualified plan that is a legacy plan and is not being offered to employees who are not currently participants. The plan was intended to provide supplemental retirement benefits to enable us to attract and retain executives. Mr. Franklin is the only current NEO participating in the SERP.

 

Littelfuse, Inc. 401(k) Plan

 

The Littelfuse 401(k) Plan provides employees the opportunity to save for retirement on a tax-favored basis. Executives may elect to participate in the Littelfuse 401(k) Plan on the same basis as all our other employees.

 

Post-Employment Compensation

 

On January 22, 2009, we entered into new change of control agreements, effective as of January 1, 2009, with each of our NEOs. These new change of control agreements replaced the previous change of control agreements, which by their terms expired on January 1, 2009. The new change of control agreements contain substantially the same material terms and conditions as the prior agreements, but the minimum threshold to trigger a change of control was increased and certain changes were made to guarantee the agreements were consistent with the requirements of Section 162(m) and Internal Revenue Code Section 409A and the regulations adopted pursuant thereto. If, within the two-year period following a change of control, the NEO terminates his employment for good reason, is terminated other than for cause, or is terminated by reason of his death or disability, the NEO will be entitled to receive certain compensation and benefits. Provisions under these change of control employment agreements are based on competitive practice and are designed to ensure that the NEOs’ interests remain aligned with the interests of the stockholders should a potential change of control arise. A change of control situation often undermines our NEOs’ job security, and it is to our benefit to encourage the NEOs to seek out beneficial business transactions and to remain with us through the closing of the transaction, even though their futures may be uncertain as a result. As such, we structured the change of control provisions in the NEOs’ agreements with a “double trigger,” which requires termination of the executive without cause or by the executive for good reason in connection with a change of control. This

structure essentially places the decision of whether to trigger change of control benefits largely in the hands of the acquiring company, since the consummation of the transaction alone would not trigger the benefit.

 

Pursuant to his employment agreement, in the event Mr. Hunter terminates his employment for good reason, is terminated other than for cause, or is terminated by reason of his death or disability, he will be entitled to receive certain compensation and benefits. These additional termination related payments are provided for under his employment agreement, the provisions of which are based on competitive practice.

 

Please see the section below entitled “Post-Employment Compensation” for further discussion of these agreements.

 

Notwithstanding anything to the contrary set forth in any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate other filings with the SEC, including this Proxy Statement, in whole or in part, the following Compensation Committee Report shall not be deemed to be incorporated by reference into any such filings.

 

Compensation Committee Report

 

To the Board of Directors of Littelfuse, Inc.:

 

We have reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement.

 

Based on the review and discussion referred to above, we recommend to the Board of Directors that the Compensation Discussion and Analysis referred to above be included in this Proxy Statement and in our Annual Report on Form 10-K for the year ended December 27, 2008.

 

Compensation Committee:

 

John P. Driscoll (Chairman)

William P. Noglows

 

Compensation Tables and Narrative Disclosures

 

The following table sets forth compensation information for our Named Executive Officers for services rendered in all capacities to us and our subsidiaries in fiscal years 2008, 2007 and 2006.

 

Summary Compensation Table

 

 

 

 

The following table provides additional information with respect to options and stock-based awards granted in 2008, the value of which was provided in the Stock Awards and Options Awards columns of the Summary Compensation Table, and the potential range of payouts associated with the Annual Incentive Plan.

 

Grants of Plan-Based Awards in 2008 Table

 

 

 

 

 

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in 2008 Table

 

Annual Incentive Plan

 

The amounts listed in the Threshold, Target and Maximum columns under the Estimated Possible Payouts Under Non-Equity Incentive Plan Awards heading of the Grants of Plan-Based Awards in 2008 Table represent the potential range of cash awards for the Annual Incentive Plan for 2008. For 2008, a threshold, target and maximum award was established for each Named Executive Officer as a percent of base salary as shown below.

 

 

Option Awards, Performance Share/Unit Awards and Restricted Stock Awards

 

The stock option awards granted in 2008 vest over four years in 25% increments and have a seven-year term. At the end of the three-year performance period relating to the performance shares/units granted in 2008, any earned performance share/unit awards are issued as shares of our common stock in the names of the officers. The restricted stock awards granted in 2008 are held by us until they vest, which occurs at a rate of 25% per year over each of the next four years. The unvested shares of restricted stock will continue to rise and fall in value with our common stock price during the restricted period.

 

See “— Compensation Discussion and Analysis” for a discussion of the proportion of salary and bonus in relation to total compensation, which is discussed under “Allocation Between Cash and Non-Cash Compensation and Current and Long-Term Compensation,” and other material terms of our NEOs’ compensation and the related amounts included in the foregoing tables.

The following table provides information regarding the outstanding equity awards held by each of the Named Executive Officers as of December 27, 2008.

 

Outstanding Equity Awards at 2008 Fiscal Year-End Table